House construction booms, apartment construction busts

Yesterday’s dwelling approvals data for November, released by the ABS, revealed that detached house approvals hit a fresh 20-year high:

At the same time, however, unit & apartment approvals have retraced to around 2010 levels:

Today, I want to focus on the high-rise apartment segment, which has driven the apartment bust.

The next chart shows the picture at the national level and across the four major markets, presented in rolling annual terms in order to smooth volatility:

At the national level, high-rise approvals are down 55% from their October 2015 peak.

The crash in approvals nationally has been driven by the three biggest states, with declines from peak as follows:

  • NSW: down 63% from September 2016;
  • VIC: down 46% from October 2015; and
  • QLD: down 77% from April 2016.

In 2020, approvals fell sharply in NSW and QLD, but rebounded in VIC.

The outlook for high-rise apartment construction is obviously poor, given:

  • Collapsing net immigration and foreign buyer demand;
  • High rental vacancy rates in inner cities;
  • Falling rents;
  • A new found weariness towards high density living in the wake of COVID-19 lockdowns; and
  • Possible conversion of surplus office blocks into apartments as more people work from home.

The Morrison Government’s HomeBuilder subsidy is also unlikely to provide much relief given it is targeted at detached housing, where it is doing its job.

It’s shaping up to be a tough few years for high-rise construction.

Unconventional Economist

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